How do I ask family to invest in my business?

Monday, November 24th, 2008

Dear Norm,
I’m only twenty-two years old, but I’ve been wanting to start a business for a long time. My passion is computers, and I’ve come up with a concept that has an incredible upside. I just need about $100,000 to make it a go. My father-in-law has access to that kind of money. The problem is, I have no idea how to approach him.

Dear Brandon,
Entrepreneurs are optimistic by nature, but it’s important to look at the downside risk as well as the upside potential, and let’s face it: there’s an inherent risk in borrowing money from in-laws. So first you need to ask yourself, What would happen if I lost all the money? If the loss would have serious personal ramifications, I’d look elsewhere. Business failure is tough enough without adding family trouble into the mix. But if losing the money would have no effect on your in-laws’ lives, if your family wouldn’t be torn apart, then it should be easy to approach your father-in-law. Just lay your cards on the table. Tell him you think your plan will work, but if it doesn’t, there’s a risk he’ll lose all the money he’s invested. Ask him if he’s interested and assure him that, if he isn’t, there will be no hard feelings. And remember there are other sources of capital around if your in-laws are not an option.
Yours truly, Norm

Permalink  |  Posted in Investors, Revenue, Startups

Should I charge less?

Monday, September 22nd, 2008

Dear Norm,
My home-based design business sells store fixtures and related equipment to the retailers we work with. I try to operate on a 25 percent to 30 percent gross margin, but I don’t know if that’s appropriate. I always wonder how much more revenue we could get if we charged less.

Dear Norbert,
You’re wondering about the wrong thing. You should be asking yourself how much less revenue you’d get if you charged more. Gross- and net-profit lines are far more important than sales. I’d greatly prefer to have $20,000 in gross profit on $50,000 in sales than to have the same gross profit on $100,000 in sales. Why? Because I’d have fewer headaches, fewer shipments, fewer people, and on and on. If I were you, I’d look for ways to increase your margins, not reduce them. Maybe you can get better deals on the products. Maybe you can cut your shipping costs. Yes, there are circumstances when it makes sense to cut prices, but I wouldn’t do it unless you’re certain that you’ll get the additional sales—and that they’ll be worth it.
Yours truly, Norm

Permalink  |  Posted in Revenue